Nicholas Kristof on how a system based on private health insurance frequently results in spouse impoverishment, sometimes leading to fake divorces. Here are reader comments about the article which turn out to be more interesting than the original article. This argument has not frequently been cited, but it shows how the health care debate has far reaching implications on society. It has already been shown to reduce employer competitiveness, but wrong decisions about health care can also be catastrophic to the financial lives of a person. Health care reform will introduce its own problems to the system, but it will also limit overall risk and provide a system of public accountability for health care providers and insurers. Let me say now that these organizations already use discretion to decide how much charity care and discounting to provide to individuals. The people who run these organizations are not beasts. At the same time, we have no guarantees that these organizations will act compassionately or in the public interest. We just don’t know.

Kristof’s later piece shows that Medicare and VA have generally received passing marks on delivering quality health care. (Comments here). (Update: The point about VA providing superior care seems to have been debunked). By the way, health care reform is a great issue where anecdotes matter (perhaps even more than economic analyses). You really need to read the comment thread on these articles to appreciate the problem. Anecdotes don’t help you to understand the magnitude of the problem, but they help you to understand the nature of it.

A 60-year-old woman is diagnosed with gallstones by her HMO plan doctor. That doctor asks the insurance company to approve a specialist, and the insurance company does so. The specialist wants to use shock-wave therapy to break up the gallstones, because it’s far less invasive and dangerous than surgery. The insurance company refuses to cover the procedure, calling it “experimental,” despite the fact that it’s been in use for almost 20 years, and has become a standard procedure when treating kidney stones. She appeals the decision by the insurance company, but during the appeal, she has a gall bladder attack. She lives nowhere near a hospital, so her husband drives her 40 miles and she undergoes emergency surgery to remove the stones and repair her gall bladder. The surgeon who performed the surgery made a mistake, however, which led to a second surgery to repair the damage from the first surgery.

Two years later, the same woman was diagnosed with cancer. Her physician proceeded to scare the hell out of her, and he told her things about the cancer that were patently untrue. She requested a change of physicians, to someone who actually knew about her cancer, and her insurance company refused. They advised her that she could change her primary care physician during open enrollment, but most of them were full, and that once they assigned a specialist to her case, she was pretty much stuck with that specialist.

He concludes by attacking the freedom argument used by libertarians to justify the private health insurance plan:

How free is a society, when an ever-increasing segment of its people can be ruined, financially and otherwise, by illness or injury? How free is a society when health care is seen as a privilege, reserved for those with the cash on hand to pay a doctor? How free is a society in which those who want to start businesses can’t do so, because they can’t afford to pay for its workers’ health insurance, and therefore can’t afford to hire the best workers? How free is a society in which a worker is forced to stay at his current job to keep his current health plan in force, because a change of jobs puts his coverage at risk? And how free is a society in which a person can pay hundreds of thousands of dollars into the health insurance system over the course of 30 years, lose a job, get sick or injured a month later, and be forced into bankruptcy court? How free is a society in which that same worker can continue working, but be denied coverage, should the insurance company decide they don’t wish to continue coverage?

Shook has correctly identified the problem with the libertarian objection. Even the libertarian has to concede that there is a hierarchy of needs which at some point trumps freedom. Can a completely private system address this? Here’s how we can counter the libertarian argument.

present cases where individuals are constrained by the current system, showing that the argument for more freedom does not imply keeping the status quo.

compare dollars and cents. You can say you oppose higher taxes, but if reform results in lower costs, will the libertarian objection to it disappear? Suppose I presented a plan where health care costs would rise 1% per year rather than the current 10% but with comparable success outcomes. (Comparable, but not superior). If this plan imposed certain limits on freedom (say, limiting the doctors you use), but still had comparable outcomes, I doubt most people would oppose it (never mind the libertarian purists).

Compulsion works if it results in minimal intrusion on people’s lives and applies to everybody. Look at two examples. Requiring that people wear seatbelts and requiring that people buy auto insurance. The true libertarian would object to both proposals. But the seatbelt rule just doesn’t intrude on people’s lives that much, and it has an obvious social purpose. The auto insurance is different because you are dealing with finances and also the liability risk for harming someone else. One can argue that society has an interest in making sure that all individuals are prepared for handling liability, so that scofflaws don’t get away with murder. When another person is compelled to buy auto insurance, I benefit because it reduces the possibility that I will have my car damaged without the other driver paying for my harms. Everybody benefits as a result. These are simple cases and health care reform affects many decisions; my point is merely to show that compulsory measures can receive public acceptance if the public regards the intrusion as minimal and beneficial.

The religious/values argument. Religion can be a bipartisan phenomenon, and very persuasive to members of the Republican Party. Many religious people don’t care about the nuts and bolts of health care reform; they focus more on moral issues of tangential relevance (like abortion treatments). The Bible teaches compassion and helping your fellow man – a completely different system of values from the freedom-loving individual who wants government off his back. Opposition to health care reform is not inherently Republican (especially to a “Values Republican”). The real opponents are the “free market Republicans” who believe the private system works better than a public system over the long run.

The When will you compromise argument? Libertarians often adopt an absolutist position which admits no exceptions. You have to be that way, or else you are not being consistent. (Libertarianism is concerned with methods, while paternalism/utilitarian is concerned with outcomes). The problem is that humans are used to making decisions about individual people where exceptions are frequently made. The libertarian argument says, sure, anyone can freely choose to buy additional care for those who cannot afford it. But is that the way most people think about social issues? Ordinarily we like to look at individual cases and then designate one party to provide a solution. That is paternalism…no doubt about it. Take the case of a homeless man with a life-threatening illness (and receiving no medical care). The libertarian would say that if individuals or groups become aware of this injustice, they are always free to be part of the solution. But there are no guarantees. But we will never have absolute certainty that these individuals will intervene (or more importantly, to intervene soon enough).

How can you be sure that sufficient information exists for individuals to make intelligent decisions? In the case of the homeless man with the medical problem, perhaps a charitable person exists….but how will the homeless man locate him? Libertarian solutions depends on the needy individual being able to find assistance during times of need. It also depends on humans finding good information about the consequences of their action and knowing how to make good decisions? This kind of information and cognitive skill may not exist; it may never exist. To use a trivial example: last month, I realized that my health care provider did not cover 100% of my dentist’s services. It shocked me because I thought I read the insurance policy carefully. It turns out that the health care policy claimed to cover 100% of certain costs for out-of-network dentists, but that 100% only applied for certain procedures. This was not obvious information to me; and I am the kind to be careful about insurance. Just think what would happen if 200 million people had to make financial decisions on the basis of their understanding of health insurance. You’d have miscalculations galore, many of them with serious and devastating consequences. For the system to work, each individuals would need to hire an independent agent to counsel the individual about how to make health care decisions. But that is just saying: “I don’t trust a group of bureaucrat to make a bunch of decisions on my behalf; therefore I will hire an individual who can make a bunch of decisions of my behalf.” Those opposed to paternalism may find that individuals will need to rely on advisors to make decisions on their behalf. In my mind that is not much better than paternalism. (I write about this issue in greater depth in my Free Market Can Be a Time Sink essay).

The 75,000 deaths argument. I’ve seen statistics quoted estimating that 75,000 additional people die each year as a result of no health care reform. Maybe that figure is an exaggeration, I don’t know. But if a libertarian points to the economic superiority of the private insurance system, all you have to do is to trot out the 20,000 deaths. Most people would say preventing premature deaths is a more persuasive argument than maintaining the efficiency of an economic arrangement.

Nor is there any reason why the state should not assist individuals in providing for those common hazards of life against which, because of their uncertainty, few individuals can make adequate provision. Where, as in the case of sickness and accident, neither the desire to avoid such calamities nor the efforts to overcome their consequences are as a rule weakened by the provision of assistance, where, in short, we deal with genuinely insurable risks, the case for the state helping to organise a comprehensive system of social insurance is very strong. There are many points of detail where those wishing to preserve the competitive system and those wishing to supersede it by something different will disagree on the details of such schemes; and it is possible under the name of social insurance to introduce measures which tend to make competition more or less ineffective. But there is no incompatibility in principle between the state providing greater security in this way and the preservation of individual freedom.

Quote #2:

Once it becomes the recognized duty of the public to provide for the extreme needs of old age, unemployment, sickness, etc., irrespective of whether the individuals could and ought to have made provision themselves and particularly once help is assured to such an extent that it is apt to reduce individuals’ efforts, it seems an obvious corollary to compel them to insure (or otherwise provide) against those common hazards of life. The justification in this case is not that people should be coerced to do what is in their individual interest but that, by neglecting to make provision, they would become a charge to the public. Similarly, we require motorists to insure against third-party risks, not in their interest but in the interest of others who might be harmed by their action.

Finally, once the state requires everybody to make provisions of a kind which only some had made before, it seems reasonable enough that the state should also assist in the development of appropriate institutions . . .

Up to this point the justification for the whole apparatus of “social security” can probably be accepted by the most consistent defenders of liberty. Though many may think it unwise to go so far, it cannot be said that this would be in conflict with the principles we have stated . . . It is only when the proponents of “social security” go a step further that the crucial issues arise. Even at the beginning state of “social insurance” in Germany in the 1880’s, individuals were not merely required to make provision against those risks which, if they did not, the state would have to provide for, but were compelled to obtain this protection through a unitary organization run by the government.

Libertarianism is a philosophy that advocates non-aggression and individual freedom. Libertarianism espouses that the only fair system is one in which each individual can decide what to do with their own person and property, so long as they don’t hurt or deprive others of their person or property in the process.

Your entire argument is based on the idea that general public utility should trump individual freedom. Libertarianism is not a system that tries to promote a favorable outcome for everybody. It is a system that promotes giving everybody a choice to decide on the most favorable outcome for themselves.

The core argument you have to make is why utilitarianism and socialism work better than individual choice and libertarianism.

A democratically designed system that attempts to create an economic program that is fair for everybody is both unenthical and flawed. It is unethical because it is not volutary and thus involves coercion and the forced transfer of wealth to deprive property from a segment of the population who doesn’t want to participate. It is flawed because it can only pass in our system if it is designed to benefit those who have the most clout (i.e. money), and thus never meet the intended goal of maximizing general public utility.

As a side note: even in your utilitarian assessment of the healthcare debate, you have to consider is that of the 40 million uninsured Americans, it is likely that about half of them can be insured with simple lifestyle changes, but they choose not to: http://reason.tv/video/show/get-some . Why should my money go to cover somebody who is able to get insurance, but chooses not to?

When discussing public policy, we have to focus on outcomes; that is intrinsic to making policy decisions. If your response is that public policy has a bias towards paternalism, I would agree.

I don’t accept the idea that a policy decision should be judged strictly on the extent to which individual freedoms are maximized. But even if I did have that belief, an argument could still be made that public insurance systems do not needlessly intrude on individual freedoms. Look at other OECD nations who have some kind of public insurance system. Are their citizens complaining about tyranny and lack of freedom? Aside from a few random voices in selected cases, I just don’t hear a chorus of protests from people in England or France or Germany.

Why do people in OECD countries believe that public insurance has not damaged their individual freedoms? Are they simply brainwashed? My explanation for these countries is that governmental intrusion and control is considered minimal by its citizens. For good reason, if these governments took measures that restricted individual actions too much, their political system would vote those lawmakers out. Paternalism can work if the political system is responsive to people’s need for autonomy. Furthermore, although each European country’s health insurance is different, I understand most countries involves a combination of public insurance and private insurance. So even the argument that public option plans will crowd out private insurance isn’t necessarily correct in Europe. Is there an inevitable progression towards ceding authority to governmental bodies? Well, percentage of public sector spending on GDP has steadily been increasing, but I’m not sure that this incremental change has done irreparable harm to the population.

So Europeans do not believe their freedoms are compromised. If they are receiving better negotiated care and they don’t feel that their liberties are curtailed, then even the libertarian argument seems feeble. As I mentioned before, I reject the idea that policies should be determined by process instead of outcomes.

For your sidenote: your point about the overestimation of 40 million is already well-known and irrelevant. (I read somewhere that 1/4 are priced out of the market, while 3/4 are free riders). What matters are not the people who voluntarily opt out of the system but those who can’t get in at an affordable price. If it’s 10 million, that’s still unacceptable. By definition, efficient insurance pricing tries to take risk into account. Unfortunately, in our employer-based system, that means that people who are employed (and healthy) are able to get better and cheaper insurance. It makes perfect sense from the insurer’s point of view, but it means that those with the least ability to pay have to pay the most. That is wrong to me.

In fact, those 20 or 30 million people who are choosing not to obtain insurance are making rational decisions; it never makes sense for a 25 year old to pay into a group of services they are unlikely to need. This free rider assumes that he/she can jump onboard at a later date. Second, this person may be making optimistic assumptions about the possibility of getting hurt or sick (and may lack information about the true costs of illness). In fact, some short-term insurance plans don’t provide adequate coverage at all. Sure, reform is likely to reduce the number of options for consumers. That is not necessarily a bad thing, especially if more people end up using it.

I have not studied the health care issue in depth. However, if the public option were excluded, I would envision individual mandates, with some regulation about how much more expensive an older individual’s premiums could be. (Picking a number out of a hat, I would say that the difference in rates between a male smoker 64 years old and a female 25 year old nonsmoker could be no more than 200%). State insurance boards would define the minimal benefits for health plans and maximum out-of-pocket costs. I haven’t given thought to how you would implement a sliding scale for enrollment (what about people with no jobs? what about the disabled? the homeless?). Perhaps the feds should set benchmarks for that. These are just my random musings; let the policy wonks hammer something out.

I mentioned previously that libertarianism also fails as a decision-making methodology for issues like global-warming and government bailouts. How do you price future risk? How do you buffer the world from the self-interested (and environmentally destructive) behavior of some companies? You need regulation and oversight; that is the only method. Even if you claimed that the private tort system would allow victims to be compensated for bad behavior, how would that undo the damage?